A second ruling on employee compensation under Section 134

August 8, 2017

This is a second employee invention where the inventor has referred the case to the relevant committee under Section 134 of the Israel Patent Law 1967. The company countered that the case should be thrown out.

Here are the details:

On 25 June 2013, Mr. XXXX, henceforth Ploni (see Ruth 4:1) requested a compensation ruling under Section 134 of the Patent Law for his employee invention, made during his employment at YYYY Ltd, henceforth the company where he worked over the years____________.

On 13 February 2014, the company requested three interim rulings:

  1. That the case be thrown out due to the Statute of Limitations.
  2. That the case be thrown out due to tardiness or the employee having given up on receiving compensation
  3. (in absence of above) that the committee set a timetable for the proceeding.

On 11 March 2014, the Employee Inventor responded to the request for a timetable and on 5 June 2014, requested a timetable himself.

In an interim decision from 15 June 2014 the committee ruled:

After reviewing the documents mentioned above, and also the response of 11 March 2014, the committee with relate to the issue of the employee having apparently given up on compensation in light of the correspondence between the parties. Thus Ploni is given 30 days to respond to the question of giving up of rights within 30 days.

Before a hearing was held, on 4 August 2014, the committee suspended the proceeding pending the Supreme Court’s ruling on Bagatz 4353/14 Barzani vs. Isscar Ltd, regarding the cogent nature of the compensation under section 134.

In that case, the Supreme Court affirmed that the Section 134 compensation was dispositive and on 21 September 2015 the committee ruled that the hearing would focus on whether or not Ploni had given up on rights under Section 134.

Applicant’s claims

Ploni is a mechanic engineer that was employed by the company in the capacity of ___________. The company specializes in ______________.  Ploni claims that during his employment with the company he invented ___________. Ploni considers that he is entitled to compensation for his work in developing the invention which resulted in patent applications in Israel and abroad.

Ploni claims that during his employment, he recognized the need for using ___ with special characteristics_____________. Ploni claims to have taken the initiative of approaching the company to develop these solutions. He claims that he received support and the blessing of the CEO, Mr. YYYYY, and from the head of R&D Mr. ZZZZZZZZ and this resulted in a new research area at the company.

Ploni claims to have developed the _________ with original characteristics_____________ and a patent application was filed on _____________. He claimed that the early development was done at home in his own time, and only later was his boss, WWWW informed.

Ploni claimed that the Company had not developed _________until then, but applied the invention to other areas which were successful. Consequently Ploni claims that due to his development of the invention he is entitled to compensation.

Ploni denies being party to any waiver agreement with the company that relates to his inventions as an employee of the company.

The Company’s Claim

The company claims that Ploni signed a secrecy agreement (NDA) that stated that all inventions would be the sole property of the company. On termination of his employment, Ploni signed a statement to the effect that he had and would not have any monetary claims against the company. Furthermore, Ploni signed assignments of the invention to the company.

Discussion

The legal basis of the committee is defined in Section 134 of the Law as follows:

In the absence of an agreement that determines whether the inventor is entitled to compensation and what the compensation should be, appropriate compensation will be determined by the Committee for Compensation established under Section VI.

The Section opens with the words “in the absence of an agreement…”, thus when there is an agreement for employee compensation, its amount and conditions, the committee does not have authority to relate to the case.

Both parties accept that this was a service invention.

In the Committee ruling concerning Barzani vs. Isscar Ltd from 4 May 2014, which withstood an Appeal to the Supreme Court 4353/14 Barzani vs. Isscar Ltd, from 8 July 2015, it was determined that Section 134 is non-cognitive (dispositive) in that the parties can come to some other arrangement.

“The committee came to the conclusion that Section 134 is not a cogent right and is not employment law that, as socialist rights has special protection. On the face of things, and in line with the wording of the Law, it appears that the committee was correct (the Article states ‘where there is no agreement that sets employee compensation’). That as may be, with the limited right to meddle with committee decisions, the court does not see fit to interfere in this instance.

 The Supreme Court upheld this finding in 4353/14 Barzani vs. Isscar 8 July 2015.

Was there a Waiver of Rights by the Inventor?

Re Barzani ruled that the parties can make their own arrangements regarding compensation, and so the question is whether the contractual employment arrangement agreed to by the parties included or serves as a waiver of inventor compensation.

Prior to commencing employment, on 19 May 1996 Ploni signed a non-compete non-disclosure agreement. Paragraph 7 of this states that:

I hereby declare that all developments, innovations, inventions or improvements of products, materials, machines, equipment processes or manufacturing processes which I will be party to by way of my employment or which I will become aware of through my employment, are the property of the company and I have no rights in them.

We note immediately that as ruled in the Actelis vs. Yishai Ilani rejection of 3 February 2010, this wording is not in and of itself a waiver of section 134 rights.

termination of employment 2At the end of his employment, on 11 November 1999, Ploni signed a further document that was titled “Secrecy Agreement” and  paragraph 4 thereof is written in a similar style to paragraph 7 of the non-compete non-disclosure agreement from 1996:

The end of employment document is titled “Declaration” and states:

I declare in this, that with termination of my employment with the company _______ Ltd, and after being released from obligations to the company _______ Ltd, I am entitled to the social benefits of the workers and the pension rights and deposited by the company and I do not have and will not have any claims for damages or other claims.

In patent applications filed in the US, Canada, UK,  Japan and Hungary, assignments of the patent were made. By way of illustration, in the US, the assignment states:

“in consideration of the sum of One Dollar…we, the said ASSIGNORS, have sold, assigned transferred and set over… unto the ASSIGNEE…our entire right, title and interest in…

The Applicant claims that his signature was forged but the committee does not have the authority to examine such claims.

The Company is relying on three separate documents as the basis of their claim that Ploni has waived his rights:

  1. Engagement terms
  2. End of employment terms
  3. Assignments of the various foreign patent applications

In re Barzani the committee ruled that the end of employment terms are those that should be used to ascertain whether or not there is a waiving of rights:

With respect to the first and third documents we believe, as stated in re Ilani, that these are waiving of rights to the patent in favour of the company and do not constitute a waiver of compensation for the invention. The question of a waiver for compensation is found in the document that relates to the termination of employment. In this regard, it is noted that Ilani did not relate to termination of employment documentation.

Ploni claims that the termination of engagement document relates to rights until that time since the collective work agreements related to freeing of pension funds anyway. However, the committee was not prepared to consider this document as meaningless.

The general nature of the end of engagement document does not exclude service inventions, see re Barzani paragraph 44:

The wording of the end of employment document is clear and unambivalent. The Applicant has no and will not have any claims whatsoever. This wording is general and does not exclude employee inventor rights. The nature of this document is to separate the employee from the company and to terminate all obligations between the parties and that withheld benefits and redundancy payments are released to the worker. This document reflects the joint interest of the parties that there will be no future claims against the employer.

The understanding of the employer regarding what rights are included in the waiving of claims in the termination agreement are not relevant to the current issue. The waiver is a general waiver and is forward looking as discussed in re Barzani:

The committee must consider the intentions of the sides as reflected in the concrete agreements that are before them, and where the parties’ intention was to end their relationship and to prevent future legal issues, their agreement should be recognized. The Applicant claimed that he was unaware of rights under Section 134 of the Patent Law, and so the general waiver cannot include this. This claim is not acceptable. The waiver is general in wording and forward looking “there will not be…” “I will not have…”. So even rights that have not yet materialized, and so there is no specific awareness about them, are considered as included in the general waiver. This includes the right to compensation which is likely to materialize in the future.

This implies that Ploni waived all rights.

 

termination of employmentPloni claims that even if there is a general waiver, it should be voided as being boiler plate text in a standard contract and thus not binding. See Section 3 of the Law of Standard Contracts 1982.

 

 

In re Barzani paragraph 48 it is stated that the committee for compensation and remuneration does not have the right to void individual paragraphs of agreements if there is such an agreement.

In our opinion, the respondent (company) is correct. Although in Rothem vs Teva Medical Ltd 25, July 2005, we ruled that the committee can rule regarding whether it has authority or not, and whether a specific invention is considered an employee service invention, and whether or not there is an agreement regarding compensation. The Court authority found in Section 3 of the Standard Contract Law is not merely declarative, but is constitutive. The court does not consider whether sections of the contract are void or not, but rather actively cancels them or changes them. This committee does not have these powers. As soon as the committee recognizes the existence of an agreement between the parties, its job is done and it is not authorized to interpret or cancel clauses. Furthermore, since Section 134 allows compensation to be rejected there is logic in concluding that section 23(a)2 of the Law of Standard Contracts does apply. See Appeal 825/88 Israel Footballer’s Association vs. The Israel Football Association p.d. 48(5) 89, page 102-103, and paragraph 8(v) of Appeal 1291/03 Shlomo Naomi vs. Mister Mani Ltd, 20 December 2006.

The respondent claims that the statute of limitations applies, but since Ploni is considered as having waived his rights, this is moot.

Under section 134 the committee rules that the Applicant has waived his rights. Considering the relative assets of the parties, each party will bear their own costs.

Ruling by Prof Englehard, Then commissioner Kling and Professor Michael Talinker, 20 April 2017.


Employee Inventions – the first of three decisions

August 7, 2017

worker's compensationThere is a procedure by which an inventor can request that a tribunal consisting of a judge, the Commissioner and an academic can consider the appropriate compensation to the inventor for an invention made in the course of his employment.

The most recent and important ruling of this nature concerned the contribution of an inventor working for Isscar. That committee ruling was appealed through the courts. For details of that ruling, see here.

There have been two more rulings that have just published. Presumably they were decided now, as Commissioner Kling came to the end of his term of office. As the identities of the inventors and the companies have been withheld, the rulings lack the juicy details. Nevertheless, I have summarized the two rulings below as they give guidelines regarding how the committee considers the issue following the Supreme Court discussion and the various conferences, etc. that related to the issue, including one that I organized.

In the first ruling Ploni (this is the Biblical term for an unidentified character taken from Ruth 4:1) – i.e. Anon vs. Company.

Ploni requested that the committee rule on appropriate compensation for a service invention under Section 134 of the Israel Law. On 20 November 2014 the company requested that the submission be thrown out, and, following a request from the committee that he do so, Ploni responded on 20 September 2015.

A hearing was held on 11 July 2016, which was attended by the Company, their CEO Mr XXXX, and their attorney Daniel Bostonai. Ploni was not represented.

The Main Facts (censored)

The company was founded in 1999 as a start up company that never got beyond the development stage. The field of activity is withheld.

contractPloni is a mechanical engineer that was employed as an external consultant in July 2002, and became an in-house general manager of the company in December of that year. On 16 December 2012, an employment contract was signed between the company and Ploni. This was intended to formalize the Company’s rights in developments and inventions and Ploni’s compensation for his work. The contract stated that Ploni would have no claims for additional compensation or remuneration. Ploni was also signed onto an options deal under which we would be entitled to some shares immediately, to additional shares after a period of time, and to a third batch of shares that depended on company income from sales. The original options agreement was renegotiated on 31 December 2003, to one that allowed Ploni to purchase 7.5% of the company.

From 2005 onwards, the company made several rounds of investment. In 2006, the company and Ploni exchanged various draft contracts to better define Ploni’s terms of engagement. After four drafts were exchanged and the parties failed to reach agreement, Ploni decided that he was NOT interested in continuing with the company and tendered his resignation on 4 February 2007. This came into effect on 4 March 2007.

Ploni’s Section 134 submission was related to Patent Application Numbers XXXXX and YYY from Date 1 and Date 2. These were both abandoned by the company; one was actively abandoned by applicant deciding not to pay the renewal fee allegedly due to lack of application of the patent, and the other was abandoned prior to it ever issuing.

Prior to requesting that the committee calculate a value for the service inventions, Ploni started a proceeding against the Company in the Labour Court. Essentially Ploni requested that the court order the company to allocate 7.5% of all the shares issued by the company to Ploni. The Labour Court ruled the agreements and draft agreements as relating to 7.5% of the company prior to dilution as a result of fund raising. This was appealed to the Supreme Labour Court, and returned to the Labour Court. More details follow below.

The Company’s Claims

  1. The company claims that since the parties had signed a work agreement that ruled out any additional compensation, the committee has no authority to rule compensation and the case should be dismissed. This claim was strengthened by the practice of the company and Ploni over the years.
  2. Since Ploni had signed agreements with investors that stated that the company had no other obligations, he was estopelled from claiming that the company owed him anything.
  3. The allegations that Ploni was owed something for a service invention should be considered moot in light of the statute of limitations, since the latest date by which any right could be considered was the filing date of the respective patent application.
  4. Thus the request for compensation was filed after a significant delay which indicates that Ploni had given up on any and all claims for compensation. \

Ploni’s Claims

  1. Ploni counter claimed that the signed work contract did not relate to compensation for patentable inventions and the parties did not reach agreement on compensation for these.
  2. The statute of limitations had not passed since the relevant date is Ploni’s final date of employment by the company.
  3. The Company were tardy in requesting that the case be thrown out.

RULING

The legal basis of the committee is defined in Section 134 of the Law as follows:

In the absence of an agreement that determines whether the inventor is entitled to compensation and what the compensation should be, appropriate compensation will be determined by the Committee for Compensation established under Section VI.

In the Committee ruling concerning Barzani vs. Isscar Ltd from 4 May 2014, which withstood an Appeal to the Supreme Court 4353/14 Barzani vs. Isscar Ltd, from 8 July 2015, it was determined that Section 134 is non-cogent in that the parties can come to some other arrangement.

“The committee came to the conclusion that Section 134 is not a cogent right and is not employment law that, as socialist rights has special protection. On the face of things, and in line with the wording of the Law, it appears that the committee was correct (the Article states ‘where there is no agreement that sets employee compensation’). That as may be, with the limited right to meddle with committee decisions, the court does not see fit to interfere in this instance.

In this instance, the respondent (Ploni) had the opportunity to purchase company shares. As states in the share option agreement of 16 December 2002, the respondent received his share options as a general manager of the company. As agreed in agreement of 31 December 2002, this was dependent on performance as manager:

“… In the event that vesting of all or any of the Awards is contingent upon fulfillment of certain conditions (“Vesting Conditions”), such as the achievement of certain targets by the Company or Grantee, the details thereof will be set forth in a separate Appendix that will be attached to this Award Agreement as Appendix B.

Appendix B was not submitted. Nevertheless, the respondent agrees that the share allocation was to closely follow the development of the invention by the company. In a hearing on 11 July 2016 the respondent stated that the options were for the profit of the patent.

As stated in the Isscar ruling, the purpose of the arrangement between the parties is understood from the parties’ actions. It is clear that the respondent saw the options as compensation for the service inventions in question. The directives regarding the distribution of options that were signed on 31 December 2003 are understood as being a giving up of any and all other compensation. The court deliberations of the Labour Court may be understood as being the day in court that Ploni was entitled to with respect to options that were not actualized. These ended in a settlement under which Ploni was awarded 40,000 Shekels for options that were not actualized and Ploni himself saw these as the basis for this complaint.

This conclusion renders moot further discussion regarding statute of limitation and estoppels.

The committee accepts that the case should be thrown out. However, as Ploni was unrepresented, they did not award costs against him.